LONDON: The euro sank to within a whisker of parity with the dollar on Tuesday and stock markets fell as the prospect of further central bank tightening and worries about the health of economies worldwide unnerved investors.
The dollar’s role as the safe-haven go-to currency for investors worried about the economic outlook has been burnished in recent weeks, with the U.S. currency roaring to two-decade highs against multiple currencies.
The euro has been particularly vulnerable given the impact of an ongoing spike in natural gas prices on the regional economy and the war in neighboring Ukraine, and with the European Central Bank behind rivals in raising interest rates.
The single currency had dropped to a low of $1.00005 by 1030 GMT, its weakest since December 2002. It was last at $1.0011, down 0.3% on the day.
The dollar index gained 0.3% to as high as 108.56 , while sterling hit another two-year low and the yen was not far off its weakest in more than two decades .
“There doesn’t seem to be a lot of support for euro at this point,” said Sarah Hewin, senior economist at Standard Chartered. “It does not just relate to gas prices but to what seems to be a split within the ECB over how far they raise rates.”
Business morale is also deteriorating in the euro zone with more worried about a recession. German investor sentiment fell sharply in July, according to a widely watched economic sentiment index published on Tuesday.
The focus for this week will be macro data including U.S. consumer inflation on Wednesday, and comments from Federal Reserve officials as investors look for clues on the outcome of the Fed’s upcoming policy meeting before the pre-meet blackout period.
A high inflation reading would add pressure for the Fed to step up its already aggressive pace of interest rate increases.
In equity markets, the Euro STOXX fell 0.3%, while German’s DAX was off 0.8% and Britain’s FTSE 100 was down 0.35%.
U.S. futures markets also pointed to a weaker open.
